Podcast

Episode: 77 |
Per Sjofors:
Willingness to Pay:
Episode
77

HOW TO THRIVE AS AN
INDEPENDENT PROFESSIONAL

Per Sjofors

Willingness to Pay

Show Notes

Per Sjofors runs a firm called Sales for Profit – they have developed survey tools to measure a customer’s willingness to pay, and they help their clients

  • determine what marketing method is most effective in their market
  • which advertising targets the company should focus on
  • which product features drive the highest willingness to buy
  • and the optimum price of a given product or service

In this episode, Per gives an overview of his firm’s methodology and how they work with clients.

One thing Per told me that surprised me is that he is getting a substantial number of leads from Quora.  He’s been answering questions on Quora, establishing himself as an expert there, and it is actually leading to business.

You can learn more about Per’s firm at https://www.sales4profit.com/

One weekly email with bonus materials and summaries of each new episode:

Will: Hello Per it is great to have you on the show.
Per: Well thank you Will I’m happy to be on the show and I’m looking forward to … this time with you.
Will: Great. To get started why don’t you give me an overview of your firm and the types of services that you provide?
Per: Okay, well Sales for Profit, what we do is we measure willingness to pay for companies market, and that could be a market that is business to business, or consumer placing, and we have developed a method where we can very accurately make that measurement, and we don’t segment that measurement with what we call value drivers and factors, and when you segment that measurement, you really get a data driven recipe for which market is the most likely to buy a product or service, what marketing method is most effective, which advertising target is most effective, which product features drive the highest willingness to buy, and of course you also get the optimum price of that product or service, either to drive a higher sales volume, or to drive a higher revenue streak.
Will: Okay, can you give me some sense of your methodology, what are your data sources, how do you go about pulling all this information together?
Per: We are looking forward, so the way we do things is very specific corner market research on steroids. So we use survey panel companies to drive respondents to an online survey that lives on our own servers, and we then analyze the data and we come up with a set of very precise predicted recommendations on what a company should do and can do, to improve the overall business results. As we specifically, we like to- those who work with an independent consultancy this could be used as a basis to essentially help the consultants clients to better business results, and also help the consultant to sell more consulting hours.
Will: Great, so let’s talk a little bit about the sources of information, so one source of information that goes into your analysis would be an online survey, any other sources of insight. Do you do expert interviews? Secondary research? Scrape pricing off of websites, or anything other than the surveys.
Per: No, we are very focused on doing exactly what I mentioned, to make that precise measurement, and make a very accurate prediction on what is the best market, and product, and features and so forth. And we let other people do what you just mentioned, maybe do in deep interviews, do scraping, and so forth. That is not what we do.
Will: Okay, why don’t we walk through an example, we might wanna do a couple examples ’cause maybe our approach is different. Can you give me an example of a business to business product or service that you’ve done, and maybe sanitize it and walk through a case example?
Per: We’re talking about a product, a SAS company that supplies the oil and gas industry. The company is a relatively newcomer in the industry, and because of that it launched with a relatively low featured product, and a relatively low price. But over the last couple of years, they’ve added features to the product and now the product is on par with the incumbent, or maybe better even. So it was time to look at, what is the right price for this particular company? And the measurement indicated that the market were willing to pay substantially higher prices and … we just simply recommended a precise price level for them, and they increased prices with an average 41%, and they introduced the new price from first of November last year, and they did not lose a single customer.
Will: Talk to me about the surveys that you run.
Per: Survey in this particular case was targeted to the market of all our clients, which in this case are independent contractors, and they have about 17,000 customers this particular company, and like I said, because we found that willingness to pay in the measurement much higher than the prices, we could increase their prices substantially without losing any sales volume.
Will: Talk to me how you craft a survey to really get at that, because it’s typically- you can’t just ask people “Hey, how much would you pay for this service?” People have no idea, right? And they don’t wanna admit they that’d actually pay more, most people wouldn’t say “Hey, I’ll pay 2 dollars and 67 cents for a grande coffee at Starbucks, but in reality I value that so highly, man I’d go out and pay 6 bucks for it. Right? If that’s what the price was, that’s what I’d pay.” It’s hard to get people to admit to I’d pay more, so how do you craft the questions to get at what people might actually pay?
Per: Well, you leverage the fact that there’s psychology with pricing, and that then feeds back into willingness to pay. And willingness to pay is depending on how you, as a buyer, looks at the benefit of this product. So this is not a- product or service I should say- this is not a single question but it’s a whole series of questions, where we look at what our clients market believe is high prices, low prices, why they’re low, why you think they’re high, and so forth. And it is only when we then subject the answers to, first off, quality control i.e somebody who’s saying that they’re willing to pay million bucks for that Starbucks coffee, is probably not truthful, and statistical analysis, we get to that very precise price that we’re looking for, or that precise willingness to pay I should say.
Will: So in this case, how did you find out that the market would bear a 40% higher price for this SAS product, what were some of the questions that you would ask that help you get at that?
Per: Well, first of all, this goes back to the segmentation, and we looked at which of the benefits that these contractors, that is this particular companies market, the contractors see with this service, and we segmented the willingness to pay data based on those benefits. So you have different benefits obviously with this service, and we looked at which of these benefits help the contractor the most, meaning drove the highest willingness to buy at the highest prices, and our client then were able to use that in their marketing in their messaging to their market, when they did this price increase. Does that make sense?
Will: I guess, I mean so … when you’re asking about the benefits, are you trying to say what’s the value of this to you, what’s the value of X to you, Y to you, Z to you. You trying to get them to quantify each individual benefit, or how do you-
Per: No, it’s the other way around, we segment the willingness to pay measure based on their preferences of benefits. Let me see if I can … think of another example … we just did a product for an entertainment company, they sell tickets to concerts et cetera, and the same artist in this case, and what we found in that particular case was that- well there was two things that was interesting really, and that consumers in the sort of middle age ranges, are not very willing to pay for this particular service i.e they’re kids and they’re in mid-career and so forth, whereas young and older people have a much higher willingness to pay for this particular entertainment option, we also found that oddly enough there were different willingness to pay for the same artist in different cities, so based on the location there’s different price levels that this company can set the ticket prices to attract the maximum number of buyers basically.
Will: Alright, so what would some example of the questions be that you’d have on your survey?
Per: Well, these are very short surveys, and in this particular one it was simply, where is your location? Where do you wanna sit? What is your age? What is your preference for- do you wanna buy just a ticket, or you wanna buy a ticket with meals? And do you wanna go backstage and pay extra for that, and so forth. And I think that was the full questions that we had.
Will: And then, you don’t ask like, and how much would you be willing to pay for that?
Per: Well we do, but those are proprietary questions, and I don’t wanna divulge them. And like I said, there’s a whole series of them where we ask what do you think is good? What do you think is too expensive? What do you think is- if it was offered at this price would you really buy it, or would you think it’s too expensive? Do you think it’s too cheap? If it’s too cheap, if I collared you with pricing, you don’t expect whatever you’re gonna buy is gonna be very good. So you have to understand, you have to box in what the right price is or what the right willingness to pay is.
Will: Sometimes people might not even know what the normal price is that they pay, even for something that they buy often, if it’s not a very salient purchase … like if you said, maybe a company maybe already has some kind of enterprise software, they may might know if it’s 200 dollars a month, or 400 dollars a month, they might not even know. Do you ever kind of get at that, I’m saying like, what do you think the current price is for this product, and ask people to fill in blank.
Per: We also, we’re working with a builder and helping them price be the condos that they sell, and one of the qualification questions is whether these people actually know the general price level of condos in the area that where we do the measurements. But you know things very interesting because what we get out of these project is a true demand curve, it’s not the demand curve they teach you in business school, it’s the demand curve that has a clear crest. And if you look at prices, willingness to pay lower than that crest the demand goes down, and obviously it gets higher it also goes down.
So there’s always a price that leads to the highest market share, and if there is a reference price, if we told them about something that people buy very frequently, the curve that we getting is very short, it points to very much a particular price where everybody is use to pay that price. If on the other hand, like in this case with the SAS company [inaudible 00:11:55] oil and gas, which was just exactly what you say, people did not have a reference price so that demand curve was incredibly flat, meaning that the company could really leverage that into this very substantial price increase.
Will: What are some typical indications for clients, for companies out there, that there’s an opportunity to raise the price. So you mentioned this would be once, so if your clients are even exactly aware what your price is or they can’t remember what they’re paying, maybe that’s one indication because maybe they’re willing to pay more, they’re not even paying attention. What would some other typical indications be that you’ve run across of, if it’s this sort of situation that’s a good indicator that there might be a possible opportunity to raise your price.
Per: We are being brought in almost always when there is a- some change in the company, and often that change has been say … six, nine, maybe 12 months ago, and the change is typically an investment in the company maybe by a PD firm, maybe a new management, maybe a divestiture or a merger, and once management looked for the really low hanging fruit, they are looking at prices and understanding how to use willingness to pay, and specifically segmented willingness to pay to drive better business results. And when people come to us they say “I think I’m leaving money on the table, and I just want to verify that that’s the case.” Or they say things like “I have an underperforming product, and I don’t know what to do with it.” Or they say “Our sales volume isn’t where it should be, can you help us fix it.” Or if you’re looking at very large companies, they’re often very scared of changing their prices, so they say “I think I need to change my price, but I need to be able to predict what’s going to happen.” And that is exactly the information we provide.
Will: So, one indication that I picked up there that it might be time to look at it, is just if you have not changed your price in a while, it’s been fixed for a while, then maybe there’s an opportunity to raise it, or maybe you should lower it. I’m very curious, how often does your recommendations come out to say A you should raise your price, B you should actually keep it right where it is, you’ve got it right, or C you should actually lower your price. I’m curious of across all your projects, how that breaks out.
Per: Yeah, I would say raising the price 50%, stay were it is 5%, and 45% is lower it.
Will: No kidding! That is fascinating, that it’s almost 50/50 between raising and lowering. So you’re not just about coming out and telling your clients raise your price, drops the bottom line, it really can go either way.
Per: Yeah exactly, it’s about the right price, and it’s about the- it’s that segmentation that is so important, just to give you a- we actually this morning delivered a project to a lottery company, and what we discovered was that there was a segment of the market, that instead of wanting to have … just like Powerball, I think they have two lottery drawings a week, this particular lottery has one per week. It’s a national lottery just like Powerball is, what we discovered was that there is a market of about 15% of the market, that are more interested in a lottery where the drawing is only once per month, but they’re willing to pay four times as much for that drawing, so suddenly this particular lottery can offer a different lottery bundle to expand their market with roughly 10% at four times higher price.
Will: That is not an intuitive finding for me-
Per: No it’s not!
Will: Talk to me about sometimes the other findings that you have around pricing structure, in addition to just changing the actual unit price of something, talk to me about finding different ways to structure the price, whether it’s on an all you can eat basis, a monthly rate, or charging kind of maintenance fees or service fees, or just different ways of thinking about pricing beyond where the clients are currently at.
Per: Well, first of all, in general terms when it comes to pricing, pricing needs to be simple, some companies believe they try hide the true cost by making their pricing confusing, that confuses their potential customers, and the confused customers don’t buy, so they shoot themselves in the foot. So pricing must always be easy to understand. In terms of structure, it goes back to that willingness to pay measure, and once you measure whether people are more willing to pay say on a monthly basis, if they’re more willing to pay for a service, if they’re willing to pay maintenance fees what level of that may be, and it’s about creating bundles of different offering for the client, but more often than not, it’s about simplifying it. There’s no general trends that I have ever seen ’cause you look at a market, and we’ve done more than 500 of these projects and we’ve helped price thousands of products and services, and there’s really no trend, I can’t say that there’s a certain industry that want it one way, or a certain consumer group that want it one way. It’s all depending on what the company sells, and to which market they sell.
Will: What about non-shopped fees? So, I remember one project I got involved in a long time ago, at the beginning of my consulting career, was around chequing accounts and the fees around that, and the fee that everybody looks at when they sign up, is what’s the monthly fee for the chequing account, and that’s the shopped fee, but then the non-shopped fee, what’s the fee if you have a bounced cheque, people don’t really pay attention to it, so you’re not making your choice about your chequing account based on it, so you can kinda jack those fees up, which is why they are so jacked up. So, do you look at non-shopped fees and think about where can you raise the price without being it as salient to the customers?
Per: Well that goes into any company that has a wide variety of- like most companies they have the 80/20 rule, and they have a long tail of product or services that they don’t sell very often, and because they don’t sell them very often again, the customer doesn’t have a reference, they don’t know what that should cost, and because of that companies could jack up their fees on those, but not too much because then you start getting negative feeding back and people write about you on social media and it can backfire badly.
Will: When the recommendation comes out to raise the price, what are some of your recommendations about the best way to go and implement that?
Per: First of all, you always want to tell your customers early, and you should never do what Netflix staff would typically do. Which is, surprise their customers with a price increase that you didn’t tell them about way in advance, so you should always do it well in advance. You should say things like “We are going to have a price increase from a certain date.” The messages should be is that it should not be about the price increase, it should be about something else, an added feature, an added benefit, a whatever, but the price should come in that message as the secondary item. So, [inaudible 00:21:05] Netflix what they should do, which they don’t, is to send out a message saying that since last year we’ve added- pick a number- 15,000 new movies and 13,000 more TV series, so because of that our price goes up a buck. So you tie the price increase with some added benefit, so it doesn’t stand alone. I’ve actually written a book about how to increase prices.
Will: Oh okay, what’s the title of the book?
Per: It’s on amazon of course, it’s called “7 steps to successfully increase prices and keep your customers happy” It’s also downloadable on the Sales for Profit website.
Will: So you have literally written a book on this topic.
Per: I have literally written a book about it. It’s about A understanding the true willingness to pay, B understand true segmentation, what people are willing to pay more for, and then come up with a messaging strategy that leverages the willingness to pay. The actual price increase needs to be about obviously the willingness to pay, but then using the segmentation on what benefit a market is looking for, that guides a higher willingness to pay and then use that as a basis for the messaging. And then if you’re in the need to be situation, you also need to have contingency plan, what happens when if the case that people call in and are very upset, what do you wanna do? Do you wanna grandfather them? Do you wanna [inaudible 00:22:47] for how long? And so forth. And companies typically need to train their customization people on this whole messaging, and on the contingency plans.
Will: Okay, great! What should a company do when they change their price, either raising it or lowering it, and what if they find out they’ve made a mistake and their estimates are off. They raised the price and they think that the markets gonna bear that, but then they have customers that are canceling in droves, or they lower the price and volume doesn’t pick up the way they thought it would, can companies recover and return back the original price or what should they do then?
Per: That’s sort of an interesting question, I’m looking at this most often in the case of new started companies with disruptive products, ’cause the most common reason why they fail is just wrong pricing, and if you have disruptive product, you’re only gonna sell to earlier doctors, and earlier doctors, there’s only a few of them. So what happens if you bring out a disruptive product to the market, you sell to a few early doctors and then never enough of them, so you look at what you promised you were gonna sell, you look at what you actually sold and you panic and then you lower the price. And more often than not, that actually leads to an even lower sales level, and then you can’t raise the price and you die. That’s the most common reason why Starbucks fails, so when you have a disruptive product, you have to realize that the market is very small, and that you have to charge high prices for it because it is a- those earlier doctors buy for all different reasons, but low price is not one of them.
When it comes to a more established company, if you increase price and sales fall off a cliff, well then you can simply just reduce it back to where it were, it also means that you probably used gut feel or guesses or looked at a competitor or something like that, a lot of non-scientific way of looking at prices, so that’s not a problem. The problem comes if you lower the price and doesn’t see it pick up or even see lowering in sales, or the pick up is not as big as you expected, and we work with companies who have had that experience and that almost died as a result, because once you lower the price you can’t just jack it up again, you need to find a reason to jack it up, and often that reason is maybe a new product version or introducing new services and stuff like that, and that’s not something that you can do overnight.
Will: That makes sense. Let’s talk about- I’d love to ask about your survey panels a little bit, it sounds like you work across a pretty wide range of industries. Talk to me about the survey companies that you work with. Is it just one or two that serve all your needs, or do you have a whole series of niche providers?
Per: We have several providers. The value service kind of companies have different focus, and some of them are national, some are international, some are consumer focused, some are business focused, so we have relationship with all of them, most of them I should say. And we use the ones that are appropriate for which product.
Will: And 500 is a lot of projects, talk to me about how you have- where your projects come from. Is it mostly repeat business, or are you going and knocking on doors, how have you developed your business?
Per: Well, first of all we’ve been doing this for a while. The whole background to why we’re doing what we’re doing is that I’ve been running companies, a couple of them in Europe and a couple of them here, and because pricing has always been an interest area of me, we did experiments, and some of those experiments worked tremendously well, others were complete disasters and we couldn’t find any rhyme or reason why. What I had learned about pricing in business school, and what I could read about pricing was just … so academic, it was useless, so about 12 years ago I set out and tried to figure out, what is it that I would’ve needed, and sort of came up with this methodology that we’re using which is- well the key is, is really a segmentation of accurate willingness to pay data. So where do they come from? No, more so are not repeat business, they find us online, they find us on social media and they call us up and they say I have a problem.
Will: And what size or type of companies are you mostly serving?
Per: Well, we’ve done from pre-revenue to pre-fortune 50, typical size is, I would say 10 million to about maybe 200 million, and we don’t have any industry focus, the method works across industries. So it really can be anything. The one thing though, there are a couple of things that you can’t really use our method for and one of them is if a company has something that is sold sort of all custom and by negotiation, we can’t help in those instances. Like-wise, we can’t do medical drugs, because it’s not about the price, it’s about how much the insurance companies reimbursing. It’s a different story, you know?
Will: So, when you do the surveys, how do you filter to make sure that you’re getting a decision maker as opposed to just some employee at that company?
Per: Well, first of all we can target in the panel, and a company may have a bunch of qualification questions in the survey, and we do- the way we phrase the questions are ultimately sneaky, so that you can’t really figure out which answer we’re looking for. And thirdly, we’re using a completely different URL so people won’t look up the name and find out what we do, and once we’ve collected all the data we have a quality control process where we asses if there are people that complete it that stay too short time on a question, that means that they didn’t read it. If they sort of click down the middle, click according to some pattern, they are being disqualified, and also if their actual pricing, their willingness to pay with salt comes out completely out of whack, like I said earlier a million bucks for a cup of coffee, or three bucks for an apartment, so then obviously they are being disqualified.
Will: And, it sounds amazing that you’ve had so many inbound inquiries. Talk to me about what you’ve done to raise awareness or increase conversion on your website, or a lot of independent professionals would be really happy to get inbound flow like that. Talk to me how you’ve managed to get it to happen.
Per: We also do cold calling and so forth, and we used to do a lot of mass mailing, we used to send out between 600,000 and a 1,000,000,000 emails a month, and that stopped working, and I guess that was simply because the spam filters got too good for use, so we worked more with social media, and what I’m actually finding is we’re getting a surprising number of leads through Quora. I’m pretty active there, and I respond to questions and it happened lately several times that people call us up, and I ask where did you find us, and they say they saw my answer on Quora.
Will: Wow, so you’re answering pricing questions on Quora, building an expertise there. That’s the first I’ve heard of Quora being a source of leads, that’s really amazing.
Per: Yeah, I mean I’ve been very surprised, because many of the questions you see are- there isn’t like if they’re by a ten year old, but some people actually use it for real.
Will: I know, Per, that you are personally a pretty active reader, and I’m always interested in knowing two or three books that have shaped someones thinking, whether that’s fiction or non-fiction, doesn’t have to be business related, but I’d love to hear for you, what are some books that have shaped your thinking?
Per: I think that, it’s actually- I think the most important book in business I’ve ever read is Causing the Chasm, I’m not sure if it’s in vogue anymore, but it certainly was during the 90’s and it’s all about how to take a company from that earlier doctored stage into the mainstream market, it’s specifically geared to high tech, but it’s applicable to any company. The other one is The Innovators Dilemma. His name is Clayton Christensen I believe, and that really talks about how innovation needs to be- any innovation is eventually superseded by another innovation, and how difficult it is to encompass to continue to innovate because they get [inaudible 00:32:53] and unhappy, while in fact if you want to be disrupted by something, you should be the disruptor to your own business. And that leads me to the last book, which is Jay Samit’s Disrupt You, which talk about not only personal disruption, but also how he in his career has been true to that statement that he has- whenever he’s been in a business and he sees disruption on the horizon, he makes sure that he disrupts his own business as opposed to somebody else.
Will: Those are some great recommendations, well Per this was fascinating discussion about pricing and how to think about raising it or lowering it and what to do, thank you so much for joining.
Per: Thank you so much Will.

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